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Agency of the Month examines the many important facets of government agencies. Each month, Federal News Radio speaks with top executives from a specific agency about the issues most important to its mission. The Agency of the Month for November 2012 - the U.S. Postal Service.

Postmaster General urges quick action in lame duck session

Oct. 31, 2012 - Agency of the Month

Postmaster General Patrick Donahoe says his agency's losses for fiscal 2012 will
be somewhere near $15 billion when Q4 numbers are released in November —
close to where the Postal Service projected they would be. The news comes a month
after USPS hit its $15-billion borrowing limit from the Department of the
Treasury, which means it's now relying completely on its own cash flow to support
operations.

"In the short term, from a cash standpoint, we'll be OK, but it's critical that
Congress moves on this legislation to get us out from behind this situation we're
in right now," Donahoe told Federal News Radio's Agency
of the Month show.

Whether that will happen is still unclear. Donahoe said he has not heard anything
specific from Congress about when it might act on the legislation or where postal
reform falls as a priority on Congress' to-do list.

"The Senate has actually passed legislation and the House has introduced
legislation so the framework is there," Donahoe said. "It would be our goal and
our hope that the House is able to push through its legislation in lame duck, get
to the conference with the Senate and hammer out a good postal bill, and get it
over to the President to sign and get into effect this year."

For Donahoe, there are three main issues the legislation must address:

receiving a refund on the agency's $11-billion overpayment into one of its
pension
funds; and

reducing mail delivery to five days a week.

The Postal Accountability and Enhancement Act of 2006 requires
USPS to pre-fund future retirees' health care benefits. So far, USPS has paid $45
billion of the approximately $90 billion it owes. However, twice this year, USPS
defaulted on payments worth a total of $11.1 billion.

"We are required to pay health benefits for employees, prepay into a fund at a
rate of about $5.6 billion a year. Now, back whenever we were delivering 213
billion pieces of mail that was a daunting challenge but we thought we'd be able
to do it. But now that our volume is down to about 165 billion, a lot less, we are
not able to make those payments anymore."

Donahoe said changing the payment structure will fix this problem.

"We're not shirking our responsibility. We think we should pay that bill. However,
it needs to be on reasonable terms," Donahoe said.

USPS' next payment into the fund is due Sept. 30, 2013.

Donahoe also supports pulling out of the Federal Employees Health Benefits Program
and setting up a health care plan specific for Postal Service employees. However,
that idea has been met with
skepticism from some lawmakers and outside experts.

USPS By the Numbers

* 2nd largest
employer in the U.S. (behind Walmart)

* $250 million
in cash generated on a daily basis, $65 billion in revenue/year

* 526,000
career employees in 2012 (Down from 800,000 in 2000)

* $1.8 billion
dispersed for payroll every two weeks

* 115 million
addresses visited every day

* 140,000
employees currently eligible to retire

* 25-30,000
employees retiring each year

"The Postal Service is currently the second largest employer in the United States
from a single entity perspective. Walmart has more people than us. ... We think
that the Postal Service should be free, like any other company, to go out into the
public market and compete the health care costs that we pay for our employees and
our retirees," Donahoe said. "This year, with the pre-funding, we will spend $13
billion for health care. We think by resolving the law and competing the health
care we can take about $6.5 billion worth of costs off. That is substantial. It is
the one, largest spend that we have that we know can really turn the tide as far
as the costs go."

In October, a Postal Service Inspector General report determined the
overpayment was due to the way the Office of Personnel Management is required to
calculate the payment owed by the Postal Service. Payment amounts are based partly
on government-wide estimates of salary increases. From January 2002 to January
2011, OPM assumed an annual pay increase of 4.11 percent for postal employees.
However, actual increases ranged from 2.77 to 3.41 percent. Lower than expected
cost-of-living adjustments and the two-year pay freeze also contributed to the
surplus.

The problem is that current law does not offer a way for USPS to get the money
back. Both the Senate and House bills currently on the table would change this.
Both contain provisions that return the funds to USPS.

If and when the money is refunded, Donahoe said he plans to use it to help pay
back the $15 billion USPS has borrowed from Treasury.

"Bottom line, that legislation is worth a change in our profit/loss statement of
$10 billion per year. It would put us back on good financial footing," Donahoe
said.

The third part of Donahoe's plan — moving to five-day delivery — is
estimated to save the agency $2.7 billion per year. Part of that would come from a
reduction in staff of about 35,000 to 40,000 employees.

If Congress were to give the Postal Service the go-ahead for five-day delivery
during the lame duck session, Donahoe said he would aim to implement it by
Memorial Day 2013, as mail volume begins to decrease over the summer months.

"The key for us is to allow our customers to set schedules up within their
framework," Donahoe said. "We've talked to our mailing customers. They have
schedules for advertising campaigns and whatnot. They've asked us to give them
about a six-month window to make the changes that they need, transportation
contracts, those types of things."

In addition to the potential job cuts due to five-day delivery, the Postal Service
has offered three different buyouts in 2012. Donahoe said he
doesn't expect anymore in the near future. With the current offers on the table,
Donahoe expects the size of his workforce to shrink below 500,000. The agency
currently has a career staff of about 526,000 and hopes to be closer to 400,000
employees by 2016.

Donahoe said he's keeping the lines of communication open with employees about the
reductions in the workforce.

"One of the things that our employees know is that the business is changing and
they like to be kept in the loop and they like to be told exactly what's going on.
So, I have had the opportunity where I've gone out to talk to people where we are
consolidating and I tell them, 'Here's what's going to happen, here's the
timeframe, here's the options.' People appreciate that because they're not any
different than anybody else. If they need to get the news, they want the news
because then they can plan and get on with the rest of their lives."

Consolidation Efforts

While legislation is still up in the air, Donahoe said the Postal Service is doing
everything in its current power to reduce costs.

Donahoe said 46 of its 461 centers were eliminated this summer and the agency
plans to close another 100 in 2013. By February 2014, the agency plans to have
reduced its number of processing centers to 230. Donahoe said the consolidation
will save the agency $3 billion per year and reduce the size of the workforce by
another 25,000.

"We've got a buyout out there right now. ... We think a number of people will
select that option to leave. That makes a much smoother landing as far as how we
take care of assignments for people in the facilities that we're going to keep
open," Donahoe said.

The agency's POSTPlan is expected
to save another $0.5 billion per year. Under the plan, half of the agency's 26,000
post offices will move to reduced window hours.

After sending close to 400,000 surveys to Postal Service customers, the agency is
now holding town hall meetings in all 13,000 locations to discuss what happens
next. Donahoe said 1,500 meetings have been held so far and the Postal Service
plans to complete another 1,000 by the holiday season.

"The bottom line there is, we're trying to match up the work hours that we have
the window open with the demand. Many of these are small places, we may only have
the window open four hours a day, but the doors will be open for customers to
access mail in their boxes or pick packages up, 8-to-10 hours a day."

Growing business

Donahoe said the Postal Service's package business has grown 9 percent in 2012 and
it's one of the areas he believes will continue to grow.

"The fact we visit every house every day, 115 million addresses on a daily basis,
it makes very good sense to a lot of people in the package business to use us for
either the full-service or the last-mile delivery. So we think that's going to be
a real big growth for us," Donahoe said.

The Postal Service's new Metro Post same-day delivery pilot in San Francisco takes
advantage of the agency's unique ability to reach every address in the
United States.

The idea — a customer orders a product online and it's delivered to their
home the same day. How it works — the Postal Service teams up with companies
within a certain geographic region. When a product is ordered, the Postal Service
gets a message to pick it up and drop it off at the customer's home.

"The way our networks are set up with our post offices across the country, we have
a matrix where you've got delivery routes that cover every square mile of this
United States," Donahoe said. "It's not that hard for us, working with a company
with today's technology, to know when somebody's got something that needs picked
up, the ability to hand it off to another carrier, and within that same day get it
delivered in the same geographic area. Now, the key thing is the geographical
area, say a 10-mile radius. You certainly aren't going to be able to pull
something off like that in a 50-mile radius and make it affordable."

Donahoe said the Postal Service is also in the process of developing package and
mail-tracking systems and is diving into the secure digital messaging field, which
he said the Postal Service will have more details on in early 2013.

"Like any other business we're going through changes. And changes, of course, have
to be done quickly and we have to have the customer in the back of mind all the
time as we make those changes," Donahoe said. "You'll see us changing over the
course of the next couple years to adapt to the environment we find ourselves in."

But, Donahoe reiterated the need for legislation to help the Postal Service along
the way.

"I think the Postal Service, given the law change, can be a very healthy
organization in the short term and the long term. We've transitioned this
organization over the history we've been in existence many, many times. If you go
way back to the invention of the telegraph, that was the end of the Postal
Service, then the telephone, then the television. All the technology changes have
only enabled us to grow in different ways and I think we'll be doing that in the
future."

As for if or when the Postal Service will run out of funds, Donahoe said, "Picking
a date when one would run out of money is not the idea. That's not what any
business would ever want to talk about. It's getting the ship righted, getting the
legislation done the way we need it so we can get back on firm financial footing
and so that we eliminate this whole crisis of confidence that's going on with the
Postal Service right now. Big companies do not want to be associated with a
company that may not be able to deliver on its promise. We are committed to
delivering on our promise."